When Does Investing Make Sense? A Financial Advisor Chimes In

When Does Investing Make Sense? A Financial Advisor Chimes In

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Free Masterclass On How to Increase Income In Retirement By Up To 30%: https://app.thepeakfp.com/free-training

Prior to online brokerage accounts and easy access to investment markets, there was a little more upfront homework and education that was required in order to invest.

In my opinion requiring more upfront education and homework was a positive thing.

It prevented costly mistakes.

It forced us to pause and truly consider where we were putting our money.

It enabled us to make better decisions.

However, because those barriers were taken down, many more people flood into investment markets and lose money or make expensive mistakes.

For that reason I always recommend consulting a professional fee-only fiduciary financial advisor before beginning to invest. In fact, if you'd like to learn how a good financial planner or financial advisor can help you increase your income in retirement by up to 30%, you can watch my free training video on the subject here: app.thepeakfp.com/free-training.

Here's a look ahead at 5 basic things I recommend clients consider before investing.

1) Do you have adequate emergency funds?

Having adequate emergency funds proves that you can spend less than you make, accumulate cash, and then have the discipline to not spend it.

It's REQUIRED to be able to do this in advance of investing - because if you cannot accumulate savings, you will have nothing to invest.

2) Do you have adequate insurance?

You need to be protected. Once you DO have money saved and you plan to begin investing, you don't want to be underinsured so that if a car accident occurs (god forbid) - someone can make a claim against your hard saved money.

3) Limit or avoid high interest debt

Avoid or eliminate all debt with the exception of housing debt.

Easy access to debt leads to bad purchasing decisions which will in turn erode at our ability to save and therefore invest.

On top of that, high interest rates on things like credit cards or hard money loans will destroy your savings potential even further.

4) Understand the risk/reward spectrum

All investments have tradeoffs.

For example: Real estate requires a much higher initial investment (in the form of a down payment) than do stocks or bonds. At the same time, real estate offers you rental income, depreciation tax benefits, as well as growth in the value of the underlying property.
But Real Estate is not very liquid or quick to sell. It takes a long time to prepare a property for sale, list the property, find a buyer, and then sell it.

And each additional investment type you consider will have their own unique array of risks and rewards that you must understand.

5) Understand your timeframe

Are you young and have many years with which to take risks when investing?

Or are you closer to retirement and needing access to your investment monies sooner? This will mean you should likely take less or no risk because you will not be able to afford losing money...

As previously stated, different investments will have different levels of risk that you should consider based on your age.

Typically cash, bonds, certificates of deposits will be viewed as lower risk.

Stocks, Real Estate, Crypto, Private Equity might be considered higher risk requiring longer time frames.

If I could impart a primary piece of wisdom for anyone considering investing it would be this:

Investing is a powerful tool to reward your future self! BUT - it is not something to be trifled with or underestimated. It is a complex business that should be treated with respect. If you want to achieve the best outcomes with your hard earned and saved money, it will require a large investment of time and education in order to do so.

These posts and videos are a great starting point.

00:48 Why Friction is important when it comes to investing

02:16 When does investing actually make sense

04:42 Thinking about TIME FRAMEs

06:20 Do you have the time, expertise, and resources to do well at it